1. The NSW gas market: is there a problem? Ai Group AGL Gas Summit The American Club, Sydney Paul Balfe Executive Director 12 July 2013

2. Topics Context: Eastern Australia and the transition to LNG export The situation in NSW – Heavily dependent on imports – Long-term contracts expiring – Uncertainty over contract roll-over, particularly from SA – Risk of significant supply contraints Mitigating the risk – Stimulating supply – Local NSW CSG production Ai Group AGL Gas Summit 2

3. Australias LNG construction boom Ai Group AGL Gas Summit 3 Source: ACIL Allen compilation of public data

4. Eastern Australia gas demand forecast (8-train, 32 Mtpa LNG scenario) Ai Group AGL Gas Summit 4 Data source: ACIL Allen GMG Australia modelling

5. Interconnected East Coast Gas Market Previously separated geographic markets now interconnected Producers have options where they sell Producers will seek the best prices for their products Price trends are reflected throughout the interconnected market Ai Group AGL Gas Summit 5

6. Wholesale gas prices: Brisbane STTM Ai Group AGL Gas Summit AEMO data 6 Spot prices are moving up ahead of LNG start-up No apparent price suppression from ramp gas

7. Wholesale gas prices: Sydney STTM Ai Group AGL Gas Summit AEMO data 7 The rising spot price trend is apparent in NSW …

8. Wholesale gas prices: Victorian Spot Market Ai Group AGL Gas Summit AEMO data 8 … and also in Victoria

9. Spot Markets vs Long Term Contracts Outside Victoria, short-term or spot markets are a recent development The market continues to be underpinned by long-term bilateral contracts – 5-10 years, backed by dedicated 2P reserves Industry investment still requires security of long-term contracts Ai Group AGL Gas Summit 9

10. The situation in NSW Heavily dependent on gas imports ex South Australia, Victoria Long term contracts expiring Uncertainty over roll-over of existing contracts, particularly from South Australia Q: If SA contract roll-over is not possible, can Victoria substitute? A: No Q: What are the alternatives? A: Develop alternative supply (eg local CSG) or risk significant contraction of gas-using industry Ai Group AGL Gas Summit 10

11. NSW gas supply by source: 2012 Ai Group AGL Gas Summit 11 ACIL Allen compilation of National Gas Market Bulletin Board data

12. NSW contracted supply vs demand Ai Group AGL Gas Summit ACIL Allen analysis 12

13. Why is there a concern about contract roll-over? Is it just a question of price? Remaining 2P Reserves in Cooper Basin heavily committed to existing contracts Very unlikely Queensland CSG will be available for NSW New reserves likely to be found in Cooper (infill, tight/shale gas) – BUT availability/timing uncertain If available, alternative sale to Gladstone LNG plants means NSW will need to pay at least LNG netback prices to secure supply Ai Group AGL Gas Summit 13

14. Cooper Basin Reserves Total remaining 2P = 1,804 PJ Available 2P = 60 PJ Ai Group AGL Gas Summit Core Energy 2012 14 Net Cooper supply to NSW in 2012 = 52 PJ

15. If we cant get gas from Cooper Basin, why not get it from Victoria? Bass Strait fields have substantial uncommitted reserves BUT – Existing pipeline capacity is inadequate to meet peak demand – Existing gas processing capacity is inadequate to meet peak demand Ai Group AGL Gas Summit 15

16. Bass Strait Reserves Total remaining 2P = 5,309 PJ Available 2P = 2,542 PJ Ai Group AGL Gas Summit Core Energy 2012 16

17. NSW Gas Supply 2012 Ai Group AGL Gas Summit 17 Data Source: National Gas Market Bulletin Board

18. NSW pipeline capacity Ai Group AGL Gas Summit 18 Data Source: National Gas Market Bulletin Board

19. Existing pipelines cannot supply full NSW market ex Victoria Ai Group AGL Gas Summit 19 Implies EGP expansion from 294 TJ/d to at least 475 TJ/d Data Source: National Gas Market Bulletin Board

20. Bass Strait region gas production 2012 Ai Group AGL Gas Summit 20 Data Source: National Gas Market Bulletin Board

21. Bass Strait producers peak output in 2012 was less than aggregate nominal capacity Ai Group AGL Gas Summit Data Source: National Gas Market Bulletin Board 21

22. Existing Bass Strait production capacity cannot meet the full Moomba load Ai Group AGL Gas Summit 22 Data Source: National Gas Market Bulletin Board

23. The risk to the NSW Gas Market In the absence of new sources of gas supply, there is a real risk that current levels of gas consumption in NSW will not be able to be maintained in the future Prices will rise, effectively rationing demand to those customers best able to pay higher prices – Price sensitive customers will exit the market » Demand destruction will bring consumption into line with available supply » Some of the exiting customers will not return, even if supply recovers and prices moderate – Worst-affected will be large industrial consumers, esp. feedstock users (chemicals, fertiliser) – Reduced dispatch of gas-fired electricity generators will see increased dispatch of existing coal-fired plant Ai Group AGL Gas Summit 23

24. NSW gas consumption vs demand: CSG Freeze Ai Group AGL Gas Summit ACIL Allen modelling 24

25. Response options Only two fundamental options: – Increase Supply OR Reduce Demand LNG export demand is effectively locked in – LNG projects have long- term offtake contracts with binding delivery commitments The only effective response options are those aimed at stimulating supply – But supply response takes time Ai Group AGL Gas Summit 25 Demand is effectively locked in … QCLNG Project – June 2013

26. NSW CSG supply: Base Case model assumptions Ai Group AGL Gas Summit 26 ACIL Allen modelling Current Queensland CSG production level

27. Economic impacts of NSW CSG supply expansion MeasureImpact Total NSW gas consumption (aggregate 2013 – 2035)+193 PJ NSW gas price (SYD city gate, 2013 – 2035 avg)-$1.03/GJ NSW Gross State Product (aggregate 2013 – 2035)+$14.2 billion NSW Real Income (aggregate 2013 – 2035)+$24.6 billion NSW Government Royalties & Payroll Tax+1.9 billion NSW employment1,411 FTE jobs Ai Group AGL Gas Summit 27 ACIL Allen modelling Note: results represent difference between Base Case and CSG Freeze Case. Real 2012 dollars

28. The NSW gas market: is there a problem? Ai Group AGL Gas Summit The American Club, Sydney Paul Balfe Executive Director 12 July 2013